Question
I have a financial planner and he charges me 3% on all money i invest with him for advice and planning of my investments including my work and private pension. I also invest a sum that goes into various funds each month. I also pay an admin flat fee each year.
The advice thus far seems fine but the fee feels high to me, what is the industry norm for this sort of financila planning?
Answer
Financial adviser fees are in rather a state of flux at the moment, following the sales commission ban from the start of this year. For the first time ever a fair proportion of the population is waking up to fact that financial advice is not 'free', having incorrectly perceived it to be under the commission system.
As a result, many financial advisers are grappling with how much to charge. Too low and they'll go out of business, too high and customers won't want to pay it (which risks going out of business).
The reason I mention all this is that it's still a bit early to work out exactly what a typical fee will be under this new regime. Of course, financial adviser fees have been around for years, but most were just intended to encourage clients to opt for the commission option, so they really weren't that meaningful.
Charging 3% initially and 0.5% a year seems to be popular so far - which (perhaps unsurprisingly) is the rate of commission that was generally paid on fund sales in the past. But then some advisers are asking for at least 3% followed by 1% a year, others an hourly rate and, less commonly, a fixed price, so it's hard to reach a consensus. And just because a certain fee structure is popular, it doesn't necessarily mean its good value.
But however the fee is structured, what really matters is the actual total cost to you in pounds and pence.
A 3% initial charge might seem reasonably fair on a £20,000 investment (i.e. £600). But is it excessive on £100,000 or more (i.e. £3,000+)? Quite possibly, unless the adviser is required to do a humongous amount of work for some reason.
If you think the 3% is steep in your situation, then ask the adviser to either cap the amount or reduce the percentage if you invest over a certain amount. The worst that can happen is they say no.
Finally, while I think many financial advisers do arguably charge too much for the work done, bear in mind that a combination of regulatory incompetence and red tape has pushed up their costs of running a business in recent years. A one man band won't likely get much change from £6,000 after paying the annual regulatory and insurance costs needed to practice as an adviser, possibly double that if paying for external compliance and administration help. Then there's the other (more usual) costs of running a business.
P.S. If any financial advisers are reading this I'd be keen to get your thoughts below. Is my view fair?
I have a financial planner and he charges me 3% on all money i invest with him for advice and planning of my investments including my work and private pension. I also invest a sum that goes into various funds each month. I also pay an admin flat fee each year.
The advice thus far seems fine but the fee feels high to me, what is the industry norm for this sort of financila planning?
Answer
Financial adviser fees are in rather a state of flux at the moment, following the sales commission ban from the start of this year. For the first time ever a fair proportion of the population is waking up to fact that financial advice is not 'free', having incorrectly perceived it to be under the commission system.
As a result, many financial advisers are grappling with how much to charge. Too low and they'll go out of business, too high and customers won't want to pay it (which risks going out of business).
The reason I mention all this is that it's still a bit early to work out exactly what a typical fee will be under this new regime. Of course, financial adviser fees have been around for years, but most were just intended to encourage clients to opt for the commission option, so they really weren't that meaningful.
Charging 3% initially and 0.5% a year seems to be popular so far - which (perhaps unsurprisingly) is the rate of commission that was generally paid on fund sales in the past. But then some advisers are asking for at least 3% followed by 1% a year, others an hourly rate and, less commonly, a fixed price, so it's hard to reach a consensus. And just because a certain fee structure is popular, it doesn't necessarily mean its good value.
But however the fee is structured, what really matters is the actual total cost to you in pounds and pence.
A 3% initial charge might seem reasonably fair on a £20,000 investment (i.e. £600). But is it excessive on £100,000 or more (i.e. £3,000+)? Quite possibly, unless the adviser is required to do a humongous amount of work for some reason.
If you think the 3% is steep in your situation, then ask the adviser to either cap the amount or reduce the percentage if you invest over a certain amount. The worst that can happen is they say no.
Finally, while I think many financial advisers do arguably charge too much for the work done, bear in mind that a combination of regulatory incompetence and red tape has pushed up their costs of running a business in recent years. A one man band won't likely get much change from £6,000 after paying the annual regulatory and insurance costs needed to practice as an adviser, possibly double that if paying for external compliance and administration help. Then there's the other (more usual) costs of running a business.
P.S. If any financial advisers are reading this I'd be keen to get your thoughts below. Is my view fair?
Read this Q and A at http://www.candidmoney.com/askjustin/794/how-much-should-an-ifa-charge
No comments:
Post a Comment